International Trade And Multinational Activity Involving Corporate Finance

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Key Concepts and Brief Explanation

International Trade

According to industry experts, international trade is simply the exchange of goods, services, and capital across international boundaries. Whatever you trade with other nations of the world brings in significant returns that represent a significant share of GDP (Gross Domestic Product).

It is a vital source of income for developing countries that allow them to improve their country’s infrastructure, facilities, communication, distribution channels, low per capita income, low literacy rate, low rates of capital investments, low wages, high-interest rates, technology, and overall social, political, and economic conditions.

The Contribution of International Trade

International trade has long existed in one form or another across the globe through important trade routes like Silk Road, Amber Road, Uttarapatha, Atlantic slave trade, salt roads, etc… So, it’s not surprising for us that a larger trade transit has developed and established over the years. Americans leading from the front have established their currency to an extent that now trades around the world is dollars. Looking at the bigger picture, it is advanced technology, industrialization, globalization, convenient ways of transportation, outsourcing, and multinationals that have all played a significant role in bringing international trade to the top.

Dependency on International Trade

Looking at today’s economy, domestic trade is not sufficient to keep the right balance in the economic growth equation. You have to look for alternate ways to keep an optimal balance in demand and supply. No country on earth is sufficient enough to produce everything that is needed for it’s economy. So, it becomes absolutely necessary for every economy to get involved in international trade for fulfilling their needs. This indicates that countries are now dependent on each other for fulfilling their needs on a massive scale. Some of the key areas where international trading is mostly done are petroleum, automobiles, medication, gold, technology, telecommunication services, insulated wires/cables, petroleum gases, jewelry, machinery, food items, agriculture and much more.

Multinational Activity

Multinational organizations are the major driving forces behind successful multinational activities. Sharing of information, knowledge, expertise, innovative techniques of handling business and trade activities have intensified the growth potentials of organizations across international borders and territories by making healthy or savvy investments. The exchange of ideas, goods, services, and capital across MNCs have enabled companies to increase their overall performance and productivity. It’s safe to say that multinational activity and international trade go hand in hand, as both are healthy for a country’s economic growth and development. Sometimes they may be used interchangeably, but both keep the economic and financial equation positive—if done properly.

Multinational Activity Builds the Economy

Multinational organizations engage in FDI (foreign direct investment) and operate in more than one country. They have better control over market knowledge, research activities, management and financial resources since they have insights into each and every economy they are operating in. For example, Unilever is one MNC that owns over 400 brands whose products are available in more than 190 countries with billions of dollars in annual sales. MNCs have been strengthening global transfers, ensuring global economic development and deepening globalization on a massive scale. MNCs have played their part in developing ties and building strong relationships with all stakeholders of the economy; government institutions, corporate legal advisors, corporate workforce, customers etc…

Acquisitions and Mergers

The reason why international trade and multinational activity have grown exponentially within the domestic and foreign corporate framework is that MNCs have been setting up and purchasing new subsidiaries in host economies through mergers and acquisitions. Looking at the bigger picture, MNCs have also ensured the influx of foreign capital into home economies, which means the GDP of developing countries has increased significantly. Also, they have provided employment opportunities to people which have helped in the reduction of crimes or unethical activities.

Improved Infrastructure and Corporate Processes

According to studies, MNCs have also improved the infrastructure of the home economy up to a great extent. This means that the overall economic and financial equation have become favorable, especially for developing countries. The increased international trade and multinational activity has even helped local companies to go global to be a larger segment of the corporate game—perhaps for reaping financial gains.

Corporate Finance

In simplest terms, corporate finance consists of financial activities related to running an organization. It deals in money-related matters, generally known as finances that are necessary for the survival and growth of any corporation. The sources of funding and capital structure of corporations have to be ensured by finance and bookkeeping departments in any organization for the smooth flow of business operations. Corporate finance experts from across the globe have derived different definitions from the term corporate financing but few have actually summed it up nicely. Looking at the broader context, the primary goal of corporate financing is to maximize a shareholder’s value and that’s what every organization aims at.

Summing Up – International Trade, Multinational Activity, Corporate Finance

These macro-level concepts bear an immense importance in corporate financing and economics. The trade between different countries has significantly helped organizations to expand their businesses and be a part of the larger corporate game. Capital is the heart and soul of any organization, without which a company can’t survive at all. The sources of capital funding are broad. It depends on US policies and the organization’s policies, from where to acquire the funding. Since MNCs operate in many different countries, they can pool their resources from a couple of economies and deploy them somewhere else. For creating a perfect balance in credit requirements, MNCs have to play smartly and keep a close eye on changing local or global market dynamics.

Closing Thoughts

MNCs have to manage their International Trade, Multinational Activity, and Corporate Finance well to create a big impact in whatever economy they are stepping into. Since the ultimate goal is to achieve success and increase stakeholder value, a unique plan with a clear execution strategy will help you achieve whatever you intend to.

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